50 years of UK credit cards:The history of how Brits use credit

By Benjamin Salisbury

June 2016 marks the 50th anniversary of the
introduction of UK credit cards. Since 1966, plastic has grown from being an
exclusive product available only to selected customers, to a product used daily
by millions.

Not only has card use changed, but security
measures to protect consumers have developed to counter ever-changing fraud
risks as the UK moves closer to a cashless society.

Evolution
of securityIn 1966, credit cards were swiped using a manual
machine to imprint the cardholders' details onto the merchant's records. To confirm
the card belonged to the buyer, the customer's signature was checked to match
the one on the back of the card.Security
has evolved hugely, particularly in the last 25 years, as paying by credit card
has changed from a manual to an electronic process.

"Since credit cards were first introduced
50 years ago, they have developed from the zip-zap machine and the magnetic
stripe on the back of a card, to chip-and-PIN," Richard Koch, head of policy
at the UK Cards Association, said in an emailed reply to questions.

As electronic payments using PINs became
established in the 1990s, the foundations were laid for current security
initiatives. "The development of the three-digit card security code in the late
‘90s added an additional layer of security which was followed by the 3D
secure system in 2010," said Koch, referring to the scheme that lets shoppers create a password for their credit card, which is verified whenever a transaction is processed through a website that supports the programme.

The introduction of chip-and-PIN in 2003,
"created a unique cryptogram for every individual transaction and heralded a
move away from an 18th century system of putting a signature on a piece of
paper to validate a payment," said Koch. "The magnetic stripe technology was
open to attempts from fraudsters, who both counterfeited cards and used lost or
stolen cards in shops by forging the signature."

Issuers have also introduced fraud
detection and prevention software that analyses transaction patterns and
behaviour to flag likely fraud.

Rapid
growth of card useBefore electronic acceptance, cards were usually only
used in person at a retail outlet. But the popularity of credit cards grew
hugely in the 1980s with the rise of credit card acceptance. Before, only
select shops, restaurants, hotels and car hires accepted credit, but this new generation
of cardholders had many more options at their fingertips.

By the 1990s, new university students were
targeted with credit cards linked to interest-free overdraft bank accounts,
encouraging a large proportion of young people to start using credit cards
early in adult life. "The number of credit cards in circulation grew steadily
for many years before peaking at almost 70 million in 2004," said Koch. "Today
there are 59 million credit cards in the UK."

Into the 21st century, the explosion of
online retail has led to even more ways to use credit cards. Lower overheads
for online retailers mean lower prices, attracting customers to buy online and
pay by credit card "because of the additional protection [credit cards] offer
if something goes wrong," asserts Koch.

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note?

Contactless cards have been a real driver in
the switch away from the use of cash. The increased use of mobile payment
platforms such as Apple Pay and Android Pay is also accelerating change, along
with the readiness of big UK retailers such as Tesco to accept the new
technology for payments.

"The growth in the use of contactless cards
provides the prospect of cards replacing cash as the main method of payment,"
said Koch. "In 2025, it is predicted that debit, credit and charge cards will
account for half of all payments by volume."

However, it will take time for small, independent
merchants to start using contactless terminals - some may not want to ever stop
accepting cash. Some consumers will resist change, too.

There are also some types of transactions,
particularly on the margins of the economy, where cash will always be king. It
is reliable and will not be rejected as a payment, which means, according to
Koch, that "whether it's for a charity collection tin, or a child's pocket
money, cash will be around for many years to come."

However, it's also clear that the UK is
leading the world in the adoption of new technology, new ways to pay and the
enthusiasm of both retailers and consumers to embrace it.